Molson Coors Canada to form joint venture to make cannabis-infused beverages

Molson Coors Canada today said it is forming a joint venture with a Canadian cannabis producer and marketer to develop, produce and market non-alcoholic, cannabis-infused beverages in Canada following legalization.

The joint venture with the Hydropothecary Corporation (which is renaming itself HEXO Corp.), will be based in Canada and operate as a standalone company. It will have a separate board, independent management team and go-to-market strategy. The deal is expected to close by the end of September. It has not yet named a chief executive.

Molson Coors Canada will have a 57.5 percent controlling interest in the venture and control three of the five board positions. HEXO will retain the remaining ownership interest and board seats. As part of the deal, Molson Coors Canada will be granted warrants to purchase shares of HEXO, pending approval of the Toronto Stock Exchange.

Production of any beverages developed by the joint venture will take place at HEXO’s facilities in Gatineu, Quebec. There are no immediate plans to use Molson Coors breweries in production of cannabis-infused beverages.

HEXO’s joint venture with Molson Coors Canada comes less than three months before adult-use cannabis becomes legal in Canada. Edibles and cannabis-infused beverages are expected to be legalized for adult use in 2019.

“Canada is breaking new ground in the cannabis sector and … Molson Coors Canada has a unique opportunity to participate in this exciting and rapidly expanding consumer segment,” said Frederic Landtmeters, president and CEO of Molson Coors Canada, in a statement. “While we remain a beer business at our core, we are excited to create a separate new venture with a trusted partner that will be a market leader in offering Canadian consumers new experiences with quality, reliable and consistent non-alcoholic, cannabis-infused beverages.”

Landtmeters cited HEXO’s “robust production capacity,” “track record of innovation” and “shared values” that have earned the trust of its consumers.

Sole focus on Canadian market

The joint venture will be formed with the sole focus on the Canadian market. Molson Coors Canada’s agreement with HEXO restricts the joint venture from operating or distributing any products in markets outside of Canada. Should marijuana become federally legal in other markets, the company will review those opportunities.

In a note to Molson Coors employees announcing the move, CEO Mark Hunter said cannabis increasingly “is becoming part of the lifestyle of many consumers” in Canada, and as the product gains legal approval “the industry is becoming more professional and mainstream with greater ability to control quality and deliver targeted experiences.”

“Consumers who want to enjoy cannabis as they would a beer – in moderation – are able to do so, which is quickly driving acceptance and adoption,” Hunter said. “And, just as generations of beer drinkers have relied on Molson Coors Canada for high-quality products from a source they can trust, cannabis consumers will know they can continue to trust the joint venture as it enters this new market with non-alcoholic cannabis-infused beverages.”

The joint venture, he said, will approach the product with a commitment to advocating for responsible consumption. One of its first priorities will be working with the Canadian government to help develop a regulatory framework that ensures the responsible marketing, purchase and use of cannabis products.

“Molson Coors has not only survived, but thrived, over many generations in an increasingly fast-changing world by anticipating and meeting consumer needs with both a pioneering spirit and a deep sense of responsibility,” Hunter said. “The joint venture is a very exciting opportunity to delight Canadian consumers with new products they can trust and enjoy responsibly.”

Other players in emerging industry

With the tie-up with HEXO, Molson Coors Canada becomes the second North American alcohol producer to enter the legalized marijuana industry.

Constellation Brands last fall took a 9.9 percent stake in another Canadian marijuana company, Canopy Growth, with the intent of developing and marketing non-alcoholic, cannabis-infused drinks.

Other cannabis-infused beverage startups are in the works in the U.S., where legal.

Heineken-owned Lagunitas Brewing Company, which last year started selling a beer that contains cannabis compound CBD, has just released Hi-Fi Hops, a sparkling non-alcoholic beverage with hops and marijuana.

California-based Two Roots Brewing Co. is producing a marijuana-infused beer at its Las Vegas brewery that could be for sale in dispensaries within weeks.

Keith Villa, former head brewer of Blue Moon Brewing Company, recently launched a new cannabis-infused nonalcoholic craft beverage company called Ceria Beverages.

And San Diego-based Cannabiniers last year launched weed-infused coffee, tea and chocolate drinks.